Dan Danford’s Theory Of Investment Relativity

We’re all in the same boat, sailing on the same stormy sea.

“We’ve lost $60,000 in our various accounts,” explained an agitated friend.  “When I think about how long and hard we worked to get that money, it just makes me crazy.  We’ll never get that money back in our lifetime.”

I listened, and I hope genuine compassion showed on my face.  The truth is that 2008 will be recorded as one of the worst investment years ever.  People everywhere are expressing similar thoughts, and who can blame them?

 

Later, though, a thought occurred that might help my friend sleep better.  I wish I’d been quick enough to share it at the time, but fast thinking isn’t always my strength.  Often – as in this case – my best thoughts grow from someone else’s seed.

Let’s assume that my friend has a few hundred thousand dollars in investments.  Add in the equity value of his real estate, and a couple of nice pensions, and his family net worth is pretty impressive.  Enough to put his family on the higher rungs of America’s economic ladder.

And he’s right when he notes that they worked long and hard to get up there.  Experience suggests that most folks in the top twenty-five percent are there for precisely that reason.  Wealth building takes serious education, effort, teamwork, and patience.  (Writer Malcolm Gladwell suggests that a bit of luck helps, too, but that’s a different subject.)

Here’s a surprising insight.  It’s easier to stay up there than get up there.  Especially regarding investments.  Truthfully, there’s more similarity than difference when it comes to investing.  Why?  Because we’re all in the same boat, sailing on the same stormy sea.

Think about your home.  Maybe you paid $200,000 for it and it’s similar to most others in the neighborhood.  Along comes a big, old, nasty recession, and housing prices fall.  You’re distressed to discover that your house is now worth $175,000.  “We lost $25,000,” screams that inner voice.  Ouch.

But wait.  The same thing also happened to every other house.  Does it really matter what the price tag says today if all prices reflect the same adjustment?  Sure, if you sold that house today, you’d get less than you paid.  But, since the same thing happened everywhere, you’ll also pay less for a different house.  Your relative position in the neighborhood or nation hasn’t changed much at all.

My friend’s investment portfolio suffered a similar fate.  The overall value dropped ten (or twenty, or thirty) percent, but so did most others!  And, interestingly, at roughly the same time, and for roughly the same reasons, prices on almost everything else dropped, too.

Skeptical?  Check recent listings of real estate.  Visit a car lot.  Walk through Best Buy or J.C. Penney’s.  Seriously, prices have fallen almost across the board.  Even a gallon of gasoline has fallen by half in recent months.

So my friend’s relative position hasn’t changed much at all.  The numbers are different, but that’s about the only change today.  Later, when economic uncertainly abates and investment prices rise again, his numbers will adjust again, too.  Simply, he was near the ladders’ top, he stayed near the ladder’s top, and – when things get better again – he’ll still be up there.

Honestly, it’s easier to stay up there than it was to get up there in the first place.  Sleep better, my friend.

Dan Danford, MBA, CRSP®

Dan Danford, a professional who began his investment career as a bank trust officer, has been advising clients on how to preserve and manage wealth for over 20 years. He was one of the founders of The Trust Company of St. Joseph, a nationally recognized Missouri-chartered trust company. He then went on to form his own commission-free investment advisory firm, Family Investment Center in 1998.

Dan feels strongly that a commission-free firm offers the best option for most people to receive independent, objective advice at reasonable rates, with a high level of personalized service. He favors solution-based planning and proven investment strategies. With his financial expertise and investment management experience, he helps clients achieve their financial goals while providing them peace of mind, convenience, economy, and simplicity. Dan serves a wide range of clients, but especially enjoys working with and educating families, nonprofit groups, and company retirement plans.

Dan has written extensively on investment-related topics and his articles have appeared in a variety of professional and general interest magazines. He has also written and published two books on investing.

Dan has taught personal finance and investing at Missouri Western State University and has been a presenter at local, regional and national workshops and conferences. He has also served on the boards of a number of civic and professional organizations. Dan is an Eagle Scout and has served as a Loaned Executive for the United Way.  He was honored with the 2003 Missouri Western State University Distinguished Alumni Service Award.

Dan is a graduate of Missouri Western, and holds an MBA from Northwest Missouri State University. He is also a Certified Retirement Services Professional®, a designation awarded by the Institute of Certified Bankers.

Areas of Expertise
•    Portfolio Design
•    Asset Management
•    Investing for Non-Profits
•    Investing for Women
•    Guidance for People in Transition
•    Independent Advice for Individuals and Families

Education/Certification
•    BSBA, Missouri Western State University
•    MBA, Northwest Missouri State
•    Certified Retirement Services Professional®

Books Authored
•    May I Help You? Why You Need a Fee-Only Investment Advisor (Infinity Publishing, 2004)
•    Million Dollar Management:  Simple Lessons to Use Wealth Management Principles for Your Family Investments (First Books Library, 2002)

Media Resource
•    New York Times, Chicago Tribune, Kansas City Star, St. Joseph News-Press, St. Joseph Telegraph, Business Week, MorningstarAdvisor, Kiplinger’s
•    KQTV Television (ABC)
•    100+ articles for trade journals, magazines
and newspapers

Boards/Organizations
•    Board of Governors – Missouri Western State University
•    St. Joseph Area Chamber of Commerce
•    St. Joseph School District Foundation
•    United Cerebral Palsy, Buchanan County
•    Phillips Theological Seminary

 

End of Content Icon

Leave a Reply

Your email address will not be published.